November 15, 2024 – Perhaps the biggest surprise of the 2024 election was that Americans woke up the next day to find the presidential race called. After the prolonged and contentious experience of the 2020 vote count, and with polls showing this election as extremely close, there was widespread relief in a clear outcome. The U.S. remains deeply politically divided, but a majority of Americans voted for change, giving Republicans control of the executive branch, the Senate, and—what appears increasingly likely—the House of Representatives. In Trump, Americans and the rest of the world find a familiar leader, but one now facing a very different set of geopolitical, social, and economic challenges compared to his previous presidency.
Equity markets responded swiftly, celebrating both a decisive election result and the anticipated economic policies of a Republican administration with control of Congress. The S&P 500 surged 4.7% last week, marking its best performance of the year. Small- and mid-cap companies also rallied initially, though some of those gains have since been pared back.
As is often the case, bond markets reacted more cautiously, reflecting the challenges of reconciling election promises with economic realities. The Trump administration will inherit a strong economy, though inflation concerns linger. This week’s data showed that consumer prices rose 2.6% in October, up from September’s 2.4%. Any new tariffs could add upward pressure on prices—a politically sensitive issue the administration will want to manage carefully.
Tariffs will also play a key role in the incoming administration’s foreign policy, particularly with China, where trade tensions could escalate and disrupt global supply chains. Trump also inherits a web of geopolitical challenges, including ongoing conflict in Ukraine, heightened tensions in the Middle East, and the evolving U.S.-China relationship. How these are addressed could significantly impact global growth and investor sentiment.
The most significant challenge facing the Trump administration is the federal deficit, which currently exceeds 6.8% of GDP, and the national debt, now standing at $35.95 trillion, or 123% of GDP. Proposals to extend or expand the Tax Cuts and Jobs Act of 2017, or to introduce new tax cuts, will face obstacles—not only from a narrowly divided Republican majority that may need to rely on budget reconciliation but also from bond market investors wary of unsustainable fiscal policy. Lessons from the market’s reaction to Liz Truss’s tax-cutting agenda in the UK remain relevant here.
Other aspects of the Trump agenda are also likely to shape the economy. Deregulation could benefit traditional industries such as oil at the expense of renewables, though much of the Biden administration’s funding for clean energy has already been allocated. Changes at the Federal Trade Commission could stimulate mergers and acquisitions, though the impact on prices remains uncertain. Meanwhile, increased deportations of undocumented migrants might strain the already tight labor market in the service sector, though their relatively small share of the workforce could limit the broader economic impact.
While markets have rallied on the prospects of a pro-growth agenda, risks remain—ranging from delays in policy implementation to geopolitical shocks or shifts in Federal Reserve policy. In the meantime, we remain focused on key economic indicators: the Federal Reserve cut interest rates last week and is expected to do so again in December; inflation continues to decline, albeit unevenly; Q4 GDP growth is projected at 2.5%, suggesting another robust quarter for the U.S. economy; and the federal budget deficit is expected to reach $1.8 trillion for fiscal year 2024, the third-largest on record after FY 2020 and 2021.
This is the economic landscape Trump inherits—and will have a hand in shaping—over the next four years. As always, we are here to guide you through this evolving landscape. Please don’t hesitate to reach out to discuss how these developments might impact your financial plan and investment strategy.
— AMD
Sources: Robertson Stephens Investment Office, Bureau of Labor Statistics, GDPNow – Federal Reserve Bank of Atlanta.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2024 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.